Amy Danise is the managing editor for the insurance section at Forbes Advisor, which encompasses auto, home, renters, life, pet, travel, health and small business insurance. She is a highly experienced editor, writer and team leader with an extensive.
Amy Danise Managing Editor, InsuranceAmy Danise is the managing editor for the insurance section at Forbes Advisor, which encompasses auto, home, renters, life, pet, travel, health and small business insurance. She is a highly experienced editor, writer and team leader with an extensive.
Written By Amy Danise Managing Editor, InsuranceAmy Danise is the managing editor for the insurance section at Forbes Advisor, which encompasses auto, home, renters, life, pet, travel, health and small business insurance. She is a highly experienced editor, writer and team leader with an extensive.
Amy Danise Managing Editor, InsuranceAmy Danise is the managing editor for the insurance section at Forbes Advisor, which encompasses auto, home, renters, life, pet, travel, health and small business insurance. She is a highly experienced editor, writer and team leader with an extensive.
Managing Editor, Insurance Michelle Megna Lead Editor, InsuranceMichelle is a lead editor at Forbes Advisor. She has been a journalist for over 35 years, writing about insurance for consumers for the last decade. Prior to covering insurance, Michelle was a lifestyle reporter at the New York Daily News, a magazine.
Michelle Megna Lead Editor, InsuranceMichelle is a lead editor at Forbes Advisor. She has been a journalist for over 35 years, writing about insurance for consumers for the last decade. Prior to covering insurance, Michelle was a lifestyle reporter at the New York Daily News, a magazine.
Michelle Megna Lead Editor, InsuranceMichelle is a lead editor at Forbes Advisor. She has been a journalist for over 35 years, writing about insurance for consumers for the last decade. Prior to covering insurance, Michelle was a lifestyle reporter at the New York Daily News, a magazine.
Michelle Megna Lead Editor, InsuranceMichelle is a lead editor at Forbes Advisor. She has been a journalist for over 35 years, writing about insurance for consumers for the last decade. Prior to covering insurance, Michelle was a lifestyle reporter at the New York Daily News, a magazine.
| Lead Editor, Insurance
Updated: Jun 6, 2024, 2:00am
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If you’re buying life insurance, one of your first questions is: How much life insurance do I need?
There are multiple ways to calculate the right life insurance coverage amount, but not all methods are optimal.
Your savings, debts, income and family situation all play roles in figuring out how much life insurance you need.
You want a death benefit amount that will provide funds to cover the items your family will need money for. For instance, if you want life insurance to replace your income if you were to die, you need a policy with a much higher death benefit than if you want a policy to simply pay for your final expenses and burial.
There are multiple formulas to figure out potential life insurance needs, including multiplying your income by 10 and the DIME (debt, income, mortgage and education) method. These methods don’t offer a full financial picture, though.
Another way to figure out your life insurance needs is to use a life insurance calculator.
Here’s an easy-to-use calculator to help you determine how much life insurance you need.
Answer simple questions in our 3 step process
How much annual income would your dependents need?
How long would your dependents need financial support?
Let's calculate your life insurance need
How much debt do you need to pay off?
If you want to help with the cost of college tuition, how much would you like to cover?
How much do you want to add for burial expenses?
Let's calculate your life insurance need
How much savings do you have?
If you already have life insurance, enter the total coverage amount
Get ResultsAmount of life insurance needed
Details that you have entered
How much annual income would your dependents need?
How much debt do you need to pay off?
How long would your dependents need financial support?
If you want to help with the cost of college tuition, how much would you like to cover?
How much do you want to add for burial expenses?
How much savings do you have?
Enter total coverage amount of existing life insurance
Now that you have an estimate of your life insurance need, you can start comparing quotes
Your savings and/or current life insurance total more than your needs. In this case, you may not need life insurance. If you want to exclude your savings or life insurance from the assets your family could spend, please lower the amounts input.
Via Policygenius's Secure Website
You can also determine your life insurance need with this basic equation:
Add up the financial obligations you want to cover.
Subtract existing assets that can be used toward bills
= Your life insurance need
Here’s what you might include in financial obligations to cover:
You may run across other methods for calculating how much life insurance you need. These usually include:
Or by 5. Or by 17. This rule of thumb is hard to pin down. We’ve seen many numbers attached to it. And this method likely won’t help you pin down an appropriate amount of life insurance. It’s better to look at your total needs and subtract the assets your family could use if you pass away.
If you want your life insurance policy to help pay for your child’s college tuition and other related expenses, multiplying your income by 10 may not be enough. For instance, if you make $90,000 a year and have two children, your total life insurance need would be $1.1 million with this method.
This equation may offer a simple strategy to determine need, but doesn’t account for other expenses, assets or unique situations. A life insurance calculator will offer you a more accurate representation of your needs.
DIME stands for debt, income, mortgage and education. The method has you add up these amounts:
You may need more life insurance than you think. Depending on many other factors in your financial plan, your insurance needs change, which is why going only by broad rules of thumb can lead to being significantly under or over insured.
Different ages have different insurance needs. For example, if you just started a family and purchased a home, your life insurance needs are likely different than if you just retired, your kids are grown and you’ve paid off your mortgage.
If you intend to be cremated, your end-of-life expenses are likely less than someone with a burial wish.
Child care can put a strain on your wallet. Don’t forget to factor in those costs when buying life insurance, because a surviving parent may need funds for child care.
The more debt you have that will be passed along to others, the more life insurance you need to cover those debts.
How many kids you have, their ages and what you hope to leave them all play into your life insurance calculation. Someone with one child who is 14 needs less life insurance than someone with three children, all under the age of seven.
Your financial goals will impact the amount of life insurance coverage you need. For example, if you plan to fund your kids’ college education, your life insurance coverage amount needs to reflect that.
Life insurance riders let you customize a policy with additional features or coverage. The available riders will vary by company and policy.
If you have a lot of savings and valuable assets, you may need less life insurance than someone who does not.
The two overarching types of life insurance are term life and permanent life. You’ll need to decide if you want a term life policy, which is lower cost, or permanent life, which can last for the duration of your life. Permanent life (which has multiple types including whole life and universal life) policies have a cash value component that you may be able tap into while you’re alive.
Most people own life insurance because they want to leave enough money for beneficiaries to pay final expenses, according to LIMRA, an industry trade organization.
Burial/final expenses Transfer wealth, leave inheritance Replace lost wages of a wage earner Pay off mortgage Source: 2023 Insurance Barometer Study by LIMRA and Life Happens See More See LessThere is a substantial gender gap in life insurance ownership. While 47 million men need life insurance coverage, 56 million women need coverage, according to the 2024 Insurance Barometer Study from LIMRA and Life Happens.
There’s not only a gender gap in life insurance, but the study also found that younger generations especially need life insurance.
Many employers offer group life insurance to employees. But, since you may leave your employer at some point, your life insurance should not be wholly tied to them. Purchasing at least some level of life insurance individually ensures you’ll have something in place if you lose your job or need to quit for some reason.
While some employer policies have a portability feature that allows you to take the coverage with you when leaving the job, you may end up getting repriced. If you are much older or have had a major health event since the insurance began, the premium could significantly increase for the same amount of insurance.
Group life insurance can often work well in conjunction with an individual policy to create an insurance ladder. Let’s look at the following example:
Between the life insurance need and existing insurance, there’s a gap of $400,000. While having an individual policy for that amount is ideal, it’s often far easier to sign up via your employer, so many people do so. By signing up for 4x salary ($400,000), this person now has their full insurance needs met (assuming they don’t lose the workplace coverage).
If insurance needs decline over time, you can adjust their workplace life insurance downwards each year.
Compare Policies With 8 Leading Insurers
Once you have an idea of how much life insurance you need, you can start comparing life insurance quotes.
When buying life insurance, it’s a good idea to look at more than just the price. Consider features that are important to your financial goals, like conversion options, renewability and living benefits. For example, the best term life insurance policies can be converted to permanent life insurance. It’s also important to prepare for the life insurance medical exam.
Life insurance needs often change with age. To determine how much coverage you need at any age, consider how much money your life insurance beneficiary would need to cover expenses in your absence. This can include expenses covered by your income, existing debts or a mortgage payment, tuition and end-of-life expenses. Once you determine what expenses you want covered, use the life insurance calculator above to identify an appropriate amount of coverage.
Life insurance should generally not be considered an investment vehicle. Its primary purpose is to provide a death benefit to your beneficiaries. But permanent life insurance policies, like whole life and universal life insurance, contain a cash value component that grows on a tax deferred basis.
Helping You Make Smart Insurance DecisionsGet Forbes Advisor’s ratings of the best insurance companies and helpful information on how to find the best travel, auto, home, health, life, pet, and small business coverage for your needs.
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Managing Editor, InsuranceAmy Danise is the managing editor for the insurance section at Forbes Advisor, which encompasses auto, home, renters, life, pet, travel, health and small business insurance. She is a highly experienced editor, writer and team leader with an extensive background in the insurance sector. With a career spanning more than three decades, she has focused her work on consumer-oriented publications.
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